Facilitating Consumer Learning in Insurance Markets: What Are the Welfare Effects?

TY - JOUR

T1 - Facilitating Consumer Learning in Insurance Markets

T2 - What Are the Welfare Effects?

AU - Lagerlöf, Johan N. M.

AU - Schottmüller, Christoph

PY - 2018/4

Y1 - 2018/4

N2 - We model a monopoly insurance market in which consumers can learn their accident risks at a cost c. We then examine the welfare effects of a policy that reduces c. If c is sufficiently small (c < c*), the optimal contract is such that the consumer gathers information. For c < c*, both the insurer and the consumer benefit from a policy that reduces c further. For c > c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Finally, a reduction in c that is successful, meaning that the consumer gathers information after the reduction but not before it, can hurt both parties.

AB - We model a monopoly insurance market in which consumers can learn their accident risks at a cost c. We then examine the welfare effects of a policy that reduces c. If c is sufficiently small (c < c*), the optimal contract is such that the consumer gathers information. For c < c*, both the insurer and the consumer benefit from a policy that reduces c further. For c > c*, marginally reducing c hurts the insurer and weakly benefits the consumer. Finally, a reduction in c that is successful, meaning that the consumer gathers information after the reduction but not before it, can hurt both parties.

KW - Faculty of Social Sciences

KW - D82

KW - I13

U2 - 10.1111/sjoe.12231

DO - 10.1111/sjoe.12231

M3 - Journal article

SN - 0347-0520

VL - 120

SP - 465

EP - 502

JO - Scandinavian Journal of Economics

JF - Scandinavian Journal of Economics

IS - 2

ER -